Rent increases seem to be the norm rather than the exception in the Boston area housing market. While increases affect renters at all income levels, those near the bottom are being hardest hit.

Rent Inflation Affects Boston Area Housing

Higher rents are having a greater impact on the lower-cost housing units than on the higher-cost units say researchers for the Federal Reserve Bank. They reviewed national data compiled by the American Housing Survey from 1989-2013 to estimate the rate of inflation for rents and utilities. Their findings concluded around 32 million dwellings were constructed during that timeframe. Roughly 10.8 million were built to be marketed to the highest income earners, compared to only 3.1 million targeting the lowest income group.

The researchers further conclude increased numbers of new units attracting high-end earners is likely responsible for higher vacancy rates. Less competition among tenants helps mitigate rent inflation in that income group. Despite rents being higher for those new units, as a percentage it usually doesn’t rise as much as the lower-cost rental units. The reason? Supply of rental units at the lower end of the spectrum is more apt to occur from rents that were once higher, but have been lowered into the next bracket. The result is a “trickle-down” effect, meaning those units will probably still have higher rents than the lower-end housing, pushing up rent inflation for that segment.

During 2011-2013 rent inflation in the lowest bracket represented in the data was roughly 16%. Inflation in the highest bracket was -.4%.

This comes as little surprise to renters in the Boston area housing market. Annual rent growth during September was 5.2%, representing the highest increase since 2011 and marking the eighth consecutive month the rate has been 5% or more.

Based on a nationwide survey by property rental website Rent.com, property managers expect to raise rents as much as 8% next year. This is due to an anticipated rise in demand and a drop in vacancies. Vacancy rates for rental units across the nation recently dropped to 6.8% — the lowest in twenty years.

Further affecting the rent inflation dilemma is that construction of multifamily housing came to a surprising halt during the housing crisis. New units recently added are barely meeting pent-up demand. Rents and occupancy levels are enjoying all-time highs, driven in part by higher demand and lower supply. While new construction permits for multifamily units are within 1% of where they were during the same month last year, most of the new supply is in higher-priced markets. The urban centers of major cities have benefitted, but not renters in suburbia or in less-populated cities desperately in need of more affordable rental units.

Boston area housing experts say more than 25% of renters currently spend over 50% of their income on rent.

Find more articles pertaining to Boston area housing in our section on Boston Real Estate under the Boston Real Estate Categories to your right.

Indirectly addressing concerns that the current Boston area housing market — among others across the nation — is destined to suffer the woes of the housing collapse of less than a decade ago, Former Federal Reserve Chair Ben Bernanke recently shared his thoughts on the subject.

Has Boston Area Housing Learned a Lesson?

Bernanke said there were a number of factors that led to the housing bubble and the 2008 financial crisis. He has been quoted as saying “financial regulatory supervision should be the first line of defense against asset price bubbles and other risks to financial stability.” While the Federal Reserve was largely criticized for their monetary policy prior to the crisis, Bernanke contends the policy wasn’t the main reason for the housing bubble. If anything, the Fed may not have done enough to regulate mortgage lending at the time.

He cited growing political support during that time for sub-prime lending as a means to provide the “American Dream” of home ownership. The positive end, therefore, justified the questionable means. And while government regulators were adamant in their efforts to get rid of predatory lending they turned a blind eye toward other bad lending practices. As a result, the Boston area housing market suffered greatly.

Bernanke seems satisfied that a number of specific shortcomings were addressed as a result of the housing bubble and ensuing collapse. In fact, he says, some people feel that mortgages are too hard to get — an “overcorrection” has resulted in trying to prevent a recurrence of the past. Yet he contends the financial system is stronger and banks and other lender capital is higher, creating a more resilient system than before.

For more information on Boston area housing see the categories to your right below Boston Real Estate Categories. We also post daily on Twitter and Facebook.

Boston area flood insurance is something some people might say is a waste of money, but floods are obviously quite common in low lying areas that are surrounded by water. In these areas, not having Boston area flood insurance is like playing financial Russian Roulette in the event of a serious storm. Just look at what happened statewide in South Carolina recently.

Boston Area Flood Insurance Even If You’re Not Near Water

What about homes that are not near a water source? Do they still need to be insured against the potential for flooding? Just ask any one of the thousands of homeowners in South Carolina who recently lost everything.

As it turns out, there are many claims for flooding that come from some of the most unlikely areas. It’s not just a function of simple flooding that puts your home at risk.

First, think about what would happen to your home if just and inch or two of water covered your floors. How many of your personal items are touching the floor and how many electrical cords and extension cords do you have throughout your home just an inch or two off the floor, or worse, directly on the floor? How many of these things will put your entire home at risk if even a small amount of water enters in your home?

Ground water can start to meet the rain water when the ground is saturated. It doesn’t take much to start noticing a significant rise in bodies of waters such as small ponds, lakes and streams. It doesn’t take much for the overly saturated ground to start siphoning off rain water, which in turn creates flooding.

Floods can happen thanks to saturation of the ground just as easily as it can happen when ground water and rain water meet to cause excessive rain runoff which can lead to flooding. No matter where you live, you may very well find that you are suddenly noticing there is an increase in water saturation after heavy rain. Just ask anyone who was in a non-flood plain area in the path of the recent storm that hit South Carolina (and it wasn’t even a named storm, just a lot of rain), or Hurricane Floyd in 1999, or anyone in non-flood prone areas where Hurricane Katrina wrecked havoc.

Every area is at risk of flood these days, even in the Boston area. Flood insurance is not expensive and it is a simple way to protect your home in the event of a serious disaster like the one in South Carolina. It takes very little water to do a tremendous amount of damage that can cost you thousands of dollars right out of your pocket if you don’t have flood insurance. Some people who thought flood insurance was only for those who are near water lost their entire home and everything in it, including their cars. Flood waters can creep up on you quickly and be right at your front door before you know it. One simple flood insurance policy can mean the difference between being financially wiped out and being able to rebuild.

If you have questions about Boston area flood insurance, check out the information at the FEMA website about The National Flood Insurance Program. You can find more about not only Boston area flood insurance, but other types of insurance as well, under the Boston Insurance section of articles just below Boston Real Estate Categories to your right.

Many Boston area home buying experts say that more people are waiting longer to purchase. This is especially true with the generation known as “Millennials,” those in their late 20s to mid 30s. In fact, according to Zillow the average age of most first-time home buyers is 33, compared to 29 in the late 1970s.

An Inside Look at Boston Area Home Buying

While the housing industry has been deemed strong and vibrant, and even though interest rates are low, many young Americans are reluctant to enter the Boston area home buying arena. Real estate experts say their hesitation to buy often is the result of concerns about increasing non-housing expenses in an uncertain and often volatile economy. Factors such as the high cost of health insurance and medical care, college expenses and rising student loan debt worry prospective home buyers.

Millennials aren’t necessarily worried about higher home prices as much as they are these and other factors — including social influences. In many instances they are more apt to living in places that better suit their interests and lifestyle, regardless of whether they have to rent in lieu of building equity in a home of their own. The “double-edged sword, ” however, is that higher rents in some urban areas can mean a greater difficulty in saving for a down payment when they’re ready to enter the Boston area home buying market.

In addition, industry insiders say, some prospective home buyers see homeownership as a big risk. They grew up in a time where they saw friends and family adversely affected by the most recent housing collapse. Quite naturally, that event left an indelible mark on the psyche of many of them.

Another important factor preventing some from making Boston area home buying decisions is the job market. Most Millennials finished college during the recent recession of less than a decade ago. Many were unable to find desired employment and had to settle for whatever jobs were available. Mounting student loan debt and higher rents have forced many to plade their home buying dreams on the back burner.

One final reason some young people have eschewed the Boston area home buying experience is their ongoing love affair with “instant gratification.” And while that would ordinarily indicate their desire to enter the market in search of a new home with modern conveniences and little maintenance, the cost of doing so is prohibitive. They are forced, therefore, to consider the typical “fixer-upper,” which appeals only to a segment of their generation’s population.

Find more articles about Boston area home buying in our section on Boston Real Estate just below the Boston Real Estate Categories to your right. And be sure to Find us on Facebook and follow us on Twitter for more daily posts and tips about Boston area home buying.

Boston area real estate prices are rising. And that’s both good news and bad news, depending on whether you’re a home seller or a home buyer. According to the National Association of Realtors the median home price in the United States was up over 8% in the second quarter of this year compared to the same period a year ago. The median sales price was $229,400.

Boston Area Real Estate Prices Rising: Good News and Bad News

The good news. Higher prices mean increased home equity and hire individual net worths. That equity can be used to purchase additional investment property or a larger home or a small business. Therefore, higher real estate prices are good for stimulating the economy.

The bad news. Incomes have not kept the pace with higher prices. Although the national unemployment rate has dropped from 10% in October 2009 to a current level of 5.1%, income growth has been sluggish. In addition, there are still millions of Americans unemployed. And when wages aren’t increasing it makes it more difficult for buyers to trade up or refinance — and it especially impacts first-time home buyers.

Zillow reports that lower-income households spend 26% of their income on a home mortgage payment. Conversely, higher-income households spend an average of 12% on their mortgage. Industry experts point to that fact as a confirmation that lower incomes are flat and stagnant and higher incomes are slowly rising. The sad truth is despite low mortgage rates making mortgage payments more affordable, for lower-income families allocating more towards a monthly payment means trimming the budget in other areas.

Boston area real estate prices, although on the upswing, will have a longer road to return to their pre-recession levels. The question remains, however, as to how rising prices will affect those in the lower-income and middle-income range. Lenders and borrowers alike will keep a watchful eye on prices to ensure history doesn’t repeat itself in the loose credit, overextended market that led to the most recent housing collapse.

Find more articles pertaining to Boston area real estate prices under our Boston Real Estate section of articles to your right under Boston Real Estate Categories. We also post tips on Facebook and Twitter. Follow us there for more tips on Boston area real estate prices as well.